Setting Up a Special Needs Trust

Planning for the care and financial security of a loved one with disabilities requires careful preparation. One tool families use is to have an estate planning attorney set up a Special Needs Trust (SNT). This trust sets aside funds for a person with disabilities and protects eligibility for government benefits, such as SSI and Medicaid. Families can make informed decisions about a loved one’s future by understanding how a special needs trust works. This includes knowing its legal requirements and management responsibilities.

Objectives and Advantages

A special needs trust helps a person with a disability by providing financial support. It does so without jeopardizing access to needs-based government programs. The trust ensures that assets do not count against public benefit limits.

If a disabled person directly receives a large inheritance or financial gift, program qualification could be compromised. To prevent this, a special needs trust is established. Funds are held in trust and administered for the individual’s benefit.

A special needs trust improves quality of life by covering expenses that government benefits do not. Examples include specialized medical care, therapies, adaptive equipment, education costs, personal care services, transportation, and recreational activities. By covering these needs, the trust fills important gaps in public benefit coverage.

A major benefit is lasting financial security, as the trust provides ongoing support for beneficiaries. Family members, including parents and grandparents, can contribute assets, ensuring resources are available even when direct care cannot be provided. The trust’s legal structure and trustee administration offer prudent, reliable long-term asset management.

Special needs trusts provide an important advantage for families: peace of mind. Instead of giving assets to a loved one outright, the trust ensures those funds are used for the beneficiary’s needs while helping to protect vital program eligibility.

Legal Requirements

Creating a special needs trust requires compliance with federal and state laws. If not drafted properly, the beneficiary may lose eligibility for benefits.

The trust must state that its funds supplement, not replace, government benefits. The beneficiary cannot control trust assets; a trustee manages the funds.

There are various forms of special needs trusts. First-party trusts use the beneficiary’s assets. Third-party trusts receive funds from relatives or other sources. Each trust type has its own legal requirements. A notable example is the first-party trust. It often includes a Medicaid payback clause requiring the beneficiary's estate to reimburse Medicaid after the beneficiary’s death.

Because laws surrounding trusts and disability benefits can be complex, most families work with an experienced estate planning or disability attorney when establishing a special needs trust.

Management of the Trust

Proper management of a special needs trust is crucial for meeting legal requirements and serving the beneficiary’s needs. The trustee plays a key role in overseeing operations. This person or institution manages investments, approves distributions, keeps records, and ensures legal compliance.

A trustee must know the rules for government benefits. Certain payments, such as direct cash payments to the beneficiary, may affect benefit eligibility. Trustees usually pay service providers directly or buy goods and services for the beneficiary.

Trustees must keep accurate financial records and follow the instructions in the trust document. Some families choose a professional trustee, such as a trust company or financial institution. Others choose a trusted family member.

With careful planning and responsible management, a special needs trust can provide long-term economic security and support for individuals with disabilities throughout their lives.

We Can Help You Set Up a Special Needs Trust

You can eliminate unnecessary stress and expenses for your family and loved ones with a special needs trust. Don’t wait! Talk to one of the experienced estate planning attorneys at Bingaman Hess today at 610.374.8377 or contact us online.

This article is for informational purposes only and does not constitute legal advice. No one may rely on this information without consulting an attorney. Anyone who attempts to use this information without attorney consultation does so at their own risk. Bingaman Hess is not and shall never be responsible for anyone who uses this information. It is not legal advice.